More than any year before, 2020 has expanded our role beyond just accountants to that of business advisors. Facing confusion around every aspect of business operations, our clients quickly turned to their trusted MCB Advisors for guidance on everything from Paycheck Protection Program loan applications and forgiveness, to tax impacts of a remote workforce dispersed across several new states, to navigating employee furloughs and paid leave. This dependence on accountants for reliable information and counsel is not likely to dissipate in 2021 as the COVID-19 pandemic rages on and the Biden administration begins to implement policy.
According to a recent article in Accounting Today, the following regulatory issues are the top items to closely monitor this year:
1. Taxes
A potential increase in IRS enforcement is expected under the Biden administration and, with the Democratic Party gaining control of the Senate, it is also possible there will be some legislative action on tax policy. Another factor at play is if any future COVID-19 stimulus legislation includes provisions for state and local funding. States may increase tax enforcement as well as introduce or increase taxes to balance COVID-impacted budgets. Additionally, depletion of state trust funds from recent high unemployment levels could result in increased tax rates and potential surcharges for employers if states attempt to replenish funds without additional federal stimulus funds.
2. COVID-19 Stimulus
Former President Trump signed the latest COVID-19 relief bill into law on Dec. 27, 2020. It includes a new round of PPP funding for small businesses, plus a second draw for targeted small businesses. Also included is an extension of the Families First Coronavirus Response Act (FFRCA) tax credits, although employers are no longer required to offer the leave in 2021 as it is voluntary. An extension and expansion of the Employee Retention Credit was also included, which increases the amount of the credit available in 2021 and allows employers that receive a PPP loan to retroactively qualify; however, the credit cannot be applied on the same wages forgiven under the PPP. Also, in 2021 the collection process began for those who chose to defer the employee portion of their Social Security tax withholdings, and new reporting will be required for employers. President Biden is working on a sweeping COVID relief program, which includes direct payments to individuals; an increase to the federal minimum wage; substantial state and local aid; further small business assistance and funding to expedite the vaccine process, among other measures. He noted his intent to proceed even without GOP support, although as of this writing it is uncertain exactly what the final version will include.
3. Family Leave, Sick Leave and COVID-19 Leave
2020 brought a host of legislation related to employee leave that is likely to continue throughout the COVID-19 pandemic and beyond. Last year, employers with 500 or fewer employees became subject to the FFCRA, which provided mandatory paid leave time for workers diagnosed with COVID-19, those caring for a family member with COVID-19, or those caring for children whose place of care was closed due to the pandemic. There was a refundable federal tax credit to offset the cost of this required leave. This leave is no longer mandatory for employers beginning in 2021. The new relief package signed by former President Trump extends the tax credits for the FFCRA leave if the employers previously required to offer this leave choose to continue it through March 31, 2021. Certain state and local leave laws may be extended as the pandemic continues. There is also bipartisan interest in a permanent federal paid family leave law, with several proposals expected in the coming year. In addition, many state and local jurisdictions enacted or are contemplating paid leave laws.
4. Future of Work
The COVID-19 pandemic brought telework opportunities and challenges to the forefront for many businesses, as many employees moved quickly to remote work settings. As employers consider integrating work-from-home policies on a more permanent basis, they must examine any compliance challenges to these arrangements. One such example is tax compliance if an employee’s home is in a different location than the employer’s place of business. While some states gave a reprieve from businesses establishing tax authority based on the employee’s home location as a result of the pandemic, that relief was not necessarily permanent. Employers should also consider any wage/hour issues for non-exempt employees and how they will track hours. Workers’ compensation obligations still apply for remote workers, but rules can be complex.
5. Worker Classification
A focus on worker classification did not end with a new test for covered employers in California under AB5, enacted last January. Enforcing agencies, the courts and legislatures at the federal, state and local level are expected to continue to address this complex issue in response to worker challenges in many industries. The Department of Labor’s Wage and Hour Division is expected to soon finalize their proposal addressing worker classification under the Fair Labor Standards Act (FLSA). As proposed, the rule would make it easier for employers to classify workers as independent contractors under federal wage and hour law and therefore exempt from certain benefits available to employees; however, the future of the rule is very uncertain under the Biden administration. While a significant development, other tests for worker classification enforced by other agencies — for example, the IRS and the National Labor Relations Board (NLRB) — as well as many state and local laws and regulations, will continue to apply, and others are likely to be introduced in 2021. Penalties for worker misclassification continue to have a significant financial impact on employers of all sizes.
As we have been doing with all coronavirus legislation and IRS and SBA guidance during these past several months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.
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